Figuring out who needs to be issued Form-1099

For tax years starting in 2021, the IRS has reintroduced Form 1099-NEC to report self-employment income.  In the past, Form 1099-MISC was used to report various types of income.  Below we will outline the different reporting requirements for form 1099-NEC.

If total payments are $600 or more for services — not physical products, such as inventory, a 1099-NEC is required to be issued.  A 1099-NEC is not required and should not be issued if it's less than $600.

Services performed are for business purposes only (no personal services). Say you contract with an individual/business to remodel your office breakroom. The total comes to $5,000. You would issue a 1099-NEC in this case. But let’s say you contracted that same worker to remodel the kitchen in your home. Do you need to issue a 1099-NEC? The answer is no because the kitchen remodeling was for personal, not business reasons.

You don't have to issue 1099-NEC forms to C-Corporations and S-Corporations, except for payments made to attorneys.

Please have a W-9 (https://www.irs.gov/pub/irs-pdf/fw9.pdf) filled out for every vendor you will be issuing a Form-1099.  A business best practice is to have this form returned to you before work commences.  When a vendor fills out Form W-9, please make sure to check that Box 3 is filled out.  If they check the box for Limited Liability Company, they also need to input the tax classification (type of tax return they file) at the end of the question.  I for Individual/Sole Proprietor, C for Corporation, S for S Corporation, and P for Partnership or Trust/Estate).

This IRS has been sending out information notices regarding backup withholding.  Backup withholding can apply to most kinds of payments reported on Form 1099 when the payer does not receive a Tax Identification Number from the payee.  This backup withholding of 24 percent tax is taken from any future payments to ensure the IRS receives the tax due on this income.

Other Form 1099’s that need to be issued every year:

1099-RENT Rent is paid to your landlord or yourself if it’s a self-rental.

1099-INT Interest paid to an individual or business (non-bank) for a loan.

1098 Interest Received on a mortgage to which you are the lender.

If you would like KMAF to prepare your 1099’s, please use this link to fill out a short survey.  We will then send out an excel template to populate the information needed to prepare the forms request.

Survey: https://forms.office.com/r/eXHMwqSKTj

If you have any questions regarding anything, please reach out.

Christopher Williams CPA/PFS, CFP®, MST, chrisw@kmaf.cpa‍

Gregory Litvinuck CPA,  gregl@kmaf.cpa‍

Office 410-643-4477